The Medicare Trustees issued their Annual Report for 2011 today. It shows that the Medicare (Part A) Hospital Insurance Trust Fund is now projected to remain solvent until 2024, eight years longer than would have been the case without the reforms in the Affordable Care Act.

Without the reforms in the Affordable Care Act, the Trustees reported that the Medicare Hospital Insurance Trust Fund would expire in just five years – in 2016. Their report issued today shows that these reforms added eight years of solvency.

However, due to the downturn in the economy, the Medicare Part A Trust’s projected 2024 expiration date is five years earlier than was projected in the Trustees’ 2010 Report.

In releasing the report, HHS, Centers for Medicare & Medicaid Services (CMS) said today, “The Medicare Trustees Report released today shows that while Medicare remains solvent longer than expected prior to passage of the Affordable Care Act, challenges remain for securing the long term financial health of the Medicare program.”

“This report shows that without the Affordable Care Act, the outlook for the Hospital Insurance Trust Fund today would be much worse, said Donald Berwick, M.D., Administrator of the Centers for Medicare & Medicaid Services. “CMS is implementing critical reforms to improve care and reduce costs and improve the overall health of Medicare’s beneficiaries and the Trust Fund.”

As explained in the Introduction to the Trustees’ report, Medicare consists of four parts: Medicare Part A (hospital coverage), Medicare Part B (doctors and outpatient coverage), Medicare Part C (“Medicare Advantage,” a private insurance plan), and Medicare Part D (prescription drug coverage). The Hospital Insurance Trust Fund applies to the funding of Medicare Part A. Medicare Part B and Part D are funded in part by beneficiary premiums and in part by general revenue through the Supplementary Medical Insurance (SMI) Trust Fund.

Medicare Part A

As reported, the Medicare Part A, Hospital Insurance Trust Fund, is now projected to become insolvent in 2024.

Hospital Insurance Trust Fund expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law in all future years, exacerbated by the aging of the Baby Boom generation.

Interest earnings and asset redemptions are required to cover the difference. Hospital Insurance Trust Fund assets are projected to cover annual deficits through 2023, with asset depletion beginning in 2024.

The five year change from the 2010 Trustees report was due to a slowdown in the national economy, which resulted in a decline in tax revenues and higher real projected expenditures, according to the report. In releasing the report, HHS pointed out that, “This is not the first time that the Hospital Insurance Trust Fund expiration date has been affected by a decline in anticipated revenues. In 2004, for example, the Trust Fund exhaustion date moved up by 7 years, in large part because payroll tax revenues in 2003 were lower than had been anticipated.”

“The projections in this year’s report demonstrate the importance of the Affordable Care Act as a tool to improve the outlook for the Hospital Insurance Trust Fund, but also point to a need to continue serious discussions about driving care improvements that also address underlying cost drivers in the Medicare program,” according to a release issued with the Report by HHS.

Medicare Part B

Actual Part B expenditure growth in 2010 was lower than expected. Part B is funded by a combination of beneficiary premiums and general revenue financing.

According to the report, “The SMI trust fund (which covers Part B and Part D) is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs. Part B costs, however, have been increasing rapidly, having averaged 6.9 percent annual growth over the last 5 years, and are likely to continue doing so. Under current law, an average annual growth rate of 4.7 percent is projected for the next 5 years.” If Congress overrides a 29% physician fee reduction that is part of current law (as they did for 2003 – 2011), however, the growth rate would be 7.5 percent.

Medicare Part D

Part D, the Medicare prescription drug program, is also in financial balance as a result of annual updating of enrollee premiums and benefit payments. Projected expenditures are slightly lower overall than in last year’s report, reflecting lower-than-expected costs in 2009 and 2010 together with a reduction in the projected growth in prescription drug spending in the U.S. for the next 10 years, according to the report.

However, “For Part D, the average annual increase in expenditures is estimated to be 9.7 percent through 2020. The U.S. economy is projected to grow at an average annual rate of 5.2 percent during this period, significantly more slowly than Part D and the probable growth rate for Part B,” according to the report.

The Medicare Trustees

The Medicare Trustees include Treasury Secretary and Managing Trustee Timothy F. Geithner, Health and Human Services Secretary Kathleen Sebelius, Labor Secretary Hilda L. Solis, and Social Security Commissioner Michael J. Astrue, plus two public representatives appointed by the President and confirmed by the Senate: Charles P. Blahous III and Robert D. Reischauer. CMS Administrator Berwick is designated as Secretary of the Board.

The report was delivered to Congress pursuant to The Social Security Act, which requires that Medicare’s Board of Trustees report annually to Congress on the financial and actuarial status of the Hospital Insurance and SMI Trust Funds. The 2011 report is the 46th to be submitted.

Reaction

Members of Congress predictably reacted to the report along party lines. Read statements issued by members of Congress in the Washington Post.

More Information

The 2011 Medicare Trustees Report in its entirety is available online at CMS.HHS.gov.

The full 2010 Medicare Trustees Report is also available at CMS.HHS.gov.

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